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You are hired by Jimbo's Potato Farm to determine when Jimbo should shut down and produce no potatoes in the short run. Jimbo sells his potatoes in a perfectly competitive market. You tell Jimbo to shut down if


A) total cost is less than total revenue when marginal revenue equals marginal cost.
B) price is less than average variable cost when marginal revenue equals marginal cost.
C) price is less than average total cost when marginal revenue equals marginal cost.
D) marginal revenue is less than marginal cost.

E) B) and C)
F) A) and B)

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What are the characteristics of monopolistic competition?

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Monopolistically competitive i...

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A perfectly competitive firm has no control over the price that it charges.

A) True
B) False

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Which of the following is NOT a characteristic of a perfectly competitive market?


A) a small number of firms in a market
B) selling a standardized product
C) no barriers to entry
D) an individual firm having no control over price

E) All of the above
F) A) and D)

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Brodie sells fish in a perfectly competitive market. Suppose the current market price of fish is $4.50 per pound.


A) Brodie can sell as many fish as he can catch at $4.50 per pound.
B) Brodie can charge any price he likes for his fish, but will maximize profit if he sells for less than $4.50.
C) Brodie should charge more than $4.50.
D) Brodie can charge more than $4.50 and still sell some fish.

E) A) and B)
F) B) and D)

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The long-run supply curve is upward sloping in an increasing cost industry.

A) True
B) False

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A constant cost industry is one in which


A) demand is horizontal.
B) long-run supply is horizontal.
C) short-run supply is horizontal.
D) all of the above

E) C) and D)
F) A) and C)

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Toby sells wheat in a perfectly competitive market. This month Toby receives a higher price for a bushel of wheat than he did last month. Which of the following might explain this?


A) The market demand for wheat increased.
B) The market demand for wheat decreased.
C) Firms entered the market.
D) Toby's costs have decreased.

E) C) and D)
F) None of the above

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If the market demand decreases for a good sold in a perfectly competitive market, firms in the market


A) will be able to charge a higher price for their product.
B) will receive a lower price for their product.
C) will not be able to change their price.
D) will not be affected by the change in demand.

E) All of the above
F) C) and D)

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Figure 6.2 -Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. Suppose the current market price is $10 and the firm produces the profit maximizing output level. If the firm's total fixed cost increases due to a new government regulation, the short-run response of the firm should be to Note: since the question does not restrict the firm's response to the short run, we can't rule out that the rise in fixed cost will push the firm below the breakeven point and that the firm will exit the industry in the long run, thus decreasing its current output level. A) produce its current output level. B) increase its current output level. C) decrease its current output level. D) There isn't sufficient information. Figure 6.2 -Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. Suppose the current market price is $10 and the firm produces the profit maximizing output level. If the firm's total fixed cost increases due to a new government regulation, the short-run response of the firm should be to Note: since the question does not restrict the firm's response to the short run, we can't rule out that the rise in fixed cost will push the firm below the breakeven point and that the firm will exit the industry in the long run, thus decreasing its current output level.


A) produce its current output level.
B) increase its current output level.
C) decrease its current output level.
D) There isn't sufficient information.

E) A) and B)
F) A) and C)

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A perfectly competitive firm that is maximizing profit produces the quantity of output at which price equals marginal cost.

A) True
B) False

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Recall the Application about the supply of shipping services to answer the following question(s) . -According to the Application, at a relatively low freight rate, only the ________ efficient ships operate, and they save on cost by traveling at a ________ speed.


A) most; fast
B) most; slow
C) least; fast
D) least; slow

E) None of the above
F) A) and B)

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A firm's short-run supply curve shows the relationship between price and quantity supplied.

A) True
B) False

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A price maker is a buyer or a seller who


A) takes the market price as given.
B) buys or sells only at a price where profits can be made.
C) accepts whatever price that the government legislates as the price of the good or service.
D) has the ability to influence the equilibrium price in the market.

E) None of the above
F) A) and B)

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Oligopolies are characterized by many firms.

A) True
B) False

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For a perfectly competitive firm, price always equals marginal revenue.

A) True
B) False

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What are the characteristics of monopolies?

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A monopoly has one firm, a uni...

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Recall the Application about the demand and price for margarine to answer the following question(s) . -Recall the Application. The reason that the change in demand for margarine did not change the equilibrium price in the long run is because the margarine industry is an example of ________ industry.


A) a decreasing-cost
B) an increasing-cost
C) a constant-cost
D) a negative-cost

E) A) and D)
F) B) and C)

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A firm's short-run supply curve is the firm's


A) marginal revenue curve.
B) marginal cost curve above the minimum point of the average total cost curve.
C) marginal cost curve above the minimum point of the average variable cost curve.
D) average cost curve, below the minimum point of the marginal cost curve.

E) B) and C)
F) B) and D)

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A perfectly competitive industry is in long-run equilibrium. If demand for the product increases, we can expect the price of the good to


A) rise at first and then fall.
B) fall at first and then rise.
C) rise and remain at the higher price.
D) fall and remain at the lower price.

E) A) and C)
F) A) and B)

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